CBH and Arc Infrastructure fail to make agreement

AN arbitration process to give CBH Group long-term access to the State’s freight rail network for its grain trains is dragging on after more than 15 months.

Legal teams for CBH and Arc Infrastructure – up until a name change on Monday Arc Infrastructure was Brookfield Rail Pty Ltd -– have been meeting since March last year before an independent arbitrator to thrash out a 10-year rail network access deal.

The cost of the arbitration process is understood to be apportioned by agreement between CBH and Arc.

With the fifth anniversary of the launch of its $175 million fleet of locomotives and purpose-built aluminium grain wagons on August 24, CBH runs its grain trains under an interim access agreement.

That interim agreement, one of a number since CBH started seeking a long-term access arrangement in October, 2013, is due to expire on December 31.

A lack of long-term certainty on specific track access and cost has not stopped it moving record tonnes of grain by rail.

It set its all-time record of 984,832 tonnes moved by rail in March under the current agreement.

Rail access and shifting big tonnages costs CBH about $6 million a month during the busy first-half of the year when it is clearing regional depots to Kwinana port.

It is understood that confidential negotiations are continuing and it was hoped they could be concluded and Mr Lindgren’s determination handed down before another interim agreement was required to keep trains running.

On May 1, 2015, CBH was forced to remove its trains from the rail network for 24 hours and park them at the Avon yards, Northam, and Kwinana port bulk terminal yards – the only parts of the network it controls – when negotiations for an earlier interim agreement broke down.

Once negotiations have concluded Mr Lindgren is to provide a written determination to CBH and Arc Infrastructure.

CBH has 14 days to decide whether to take up the access arrangements and costs set out in the determination or to reject them.

If it elects to accept, the determination becomes binding on Arc Infrastructure.

Neither CBH nor Arc Infrastructure can comment directly on the negotiations without approval from the other party and Mr Lindgren cannot comment without approval from both.

Under the Arbitration Act, details of his determination may never be made public.

The determination is expected to outline complex freight network access arrangements and costs for grain trains for the next 10 years.

It is also expected to help determine what happens to 500 kilometres of Tier 3 grain lines which operated, with axle load and speed restrictions because of track conditions, until June 30, 2014.

They were placed into “care and maintenance” by then Brookfield and although trains have not run since, level crossings with legal stop signs and prohibition on grain trucks “stacking” across them at intersections has caused irritation in some Wheatbelt towns.

CBH is the first rail operator to attempt to use WA’s Rail (Access) Code 2000 to challenge what it claimed were rising rail access and freight costs for moving grain.

The code, administered by the Economic Regulation Authority (ERA), and the Railways (Access) Act 1998, were supposed to ensure fair access for rail customers and competitive pricing after the State government leased out the freight rail network for 49 years in 2000.

Arc Infrastructure as Brookfield, a subsidiary of the Australian arm of a Canadian-based asset management conglomerate with rail, port, electricity generation, communication, civil project and property management portfolios in 30 countries, took over the rail network in its own name in 2010.

Until CBH started its quest in 2013 for a long-term agreement under the code, it and other rail users had relied on private agreements outside of the code for access and to set costs.

The code, which has since been modified, was seen as unworkable, particularly in relation to the ERA’s ability to set floor and ceiling limits for price negotiation and potential assessments effectively allowing customers to be charged the equivalent of the cost of duplicating rail infrastructure.

Together, CBH and Brookfield have exhausted every option available under the code, including a failed dedicated 90-day negotiating period in 2015.

The process was taken out of ERA control in February last year when CBH formally asked for an independent arbitrator to be appointed, the final step available to it.

At that time it chose to continue along the track it had started on rather than switch to an alternate course of action involving the Australian Competition and Consumer Commission (ACCC).

The ACCC was prevented from being involved in WA rail access and price disputes for five years after the previous State government successfully applied to the National Competition Council for certification of the access regime set up by the rail code and rail act.

But certification lapsed in February last year.

Ten ERA recommendations from a statutory review of the rail code, supported by CBH and given to the State government in December, 2015, have not been formally adopted by government.

The major recommendation was the State government should consider options to bring interstate services now offered by Arc Infrastructure on the Kalgoorlie-Kwinana standard-gauge line under regulations “consistent with” a national rail access regime applying on lines east of Kalgoorlie.

Australian Rail Track Corporation (ARTC) operates standard-gauge lines east of Kalgoorlie linking with Eastern States’ capital cities and major ports, as well as the Hunter Valley coal network in New South Wales, under a national access regime administered by the ACCC.

A commercial agreement between ARC Infrastructure and ARTC allows interstate trains to run west of Kalgoorlie.

Last August, Brookfield took over regular track and civil maintenance on the 56 freight rail lines in WA, totalling 5500km, it controls.

Arc Infrastructure chief executive officer Paul Larsen this week said it was “an exciting time” for the company.